SERB07 ACNT FINAL - Amazon S3 · owner's equity for the balance sheet to be correct. Owner's equity must match liability and assets, ... A gratuity is a

KEY

Test Number 898

Accounting Applications

This comprehensive exam was developed by the MarkED Resource Center. Items have been randomly selected from the MarkED Resource Center's Test-Item Bank and represent a variety of instructional areas. Competencies for this exam are at the prerequisite, career-sustaining, marketing specialist, marketing supervisor, and manager levels. A descriptive test key, including question sources and answer rationale, has been provided the state DECA advisor.

All test items are copyrighted and are the exclusive property of the MarkED Resource Center. No item may be reproduced in any manner, with the following exception: State DECA advisors or their designees are authorized to duplicate tests, as needed, for one-time use in state-sponsored competitive events prior to May 1, 2007. Duplication after this date or for other purposes is expressly prohibited. Copyright © 2007 by Marketing Education Resource Center®, Columbus, Ohio

Test 898 ACCOUNTING APPLICATIONS — KEY 10

1. D Assets must match liabilities and owner's equity. The accounting equation used in a double-entry system of accounting is Assets = Liabilities + Owner's Equity. Assets must match the sum of liabilities and owner's equity for the balance sheet to be correct. Owner's equity must match liability and assets, liabilities must match assets and owner's equity, and assets must match retained earnings and accounts payable are not elements that must match in a double-entry system of accounting. SOURCE: BA:019 SOURCE: Schultheis, R., Kaliski, B., & Passalacqua, D. (2001). Keeping financial records for business

(9th ed.) [p. 561]. Cincinnati, OH: South-Western. 2. C

Gross income. Gross income is the total amount of money the business receives from sales and other sources, such as interest on investments. This is the figure that a business starts with when preparing a profit-and-loss statement. After determining gross income, a business subtracts operating expenses to calculate net profit or loss. Net sales is gross sales minus sales returns. Gross margin is another term for gross profit. SOURCE: BA:021 SOURCE: Stull, W.A. (1999). Marketing and essential math skills: Teacher's edition (pp. 232-235).

Cincinnati: South-Western Educational. 3. D

Intellectual. Many businesses own both tangible and intangible property. Intellectual is a type of intangible property because it is not capable of being detected through the senses. Examples of intellectual property include trademarks and trade names such as Xerox and M&M's. Businesses usually register their trademarks in order to legally protect them from being used or copied by other businesses. Tangible property is capable of being touched, smelled, tasted, seen, or heard such as office equipment. Statutory and administrative are not types of property. SOURCE: BL:001 SOURCE: Jennings, M.M. (2000). Business: Its legal, ethical and global environment (5th ed.) [pp. 488-

496]. Cincinnati: West Legal Studies in Business, South-Western College Publishing. 4. B

Set wastewater standards for industry. Setting wastewater standards is part of the agency's emphasis on the prevention of pollution, rather than correction of polluted waterways. The EPA has no authority over where you get your water supply or how much you use. While the agency may test pollution levels in rivers and streams, it has no interest in the water levels that are found there. SOURCE: BL:005 SOURCE: U.S. Environmental Protection Agency. (n.d.). Laws & regulations: Clean water act.

Retrieved October 2, 2006, from http://www.epa.gov/region5/water/cwa.htm 5. B

Reasonable accommodations. Reasonable accommodations involve providing some type of assistance to qualified employees who have limitations in order for them to do their jobs. Federal regulations require businesses to provide reasonable accommodations so that qualified employees with disabilities have the opportunity to obtain or keep their jobs. Providing reasonable accommodations does not mean changing the way that a company does business, but it does involve making reasonable concessions such as a simple modification of equipment. Federal regulations do not require businesses to provide preferential treatment or psychological counseling to qualified individuals with disabilities. Businesses provide compensation packages to all employees based on the type of work they do, their qualifications, their education, their seniority, etc. SOURCE: BL:008 SOURCE: Robinson, R.K., Franklin, G.M., & Wayland, R. (2002). The regulatory environment of human

resource management (pp. 159-165). Orlando, FL: Harcourt.


6. A Ask the caller, "How may I help you?" This question requires callers to identify the purpose of their calls. It is courteous, since you cannot provide assistance until you know what is needed. Asking, "What did you want?" sounds abrupt and impolite. Waiting for callers to ask questions would waste your time and that of the caller's. Answering promptly with a friendly greeting is a guideline for giving good telephone service, but would not identify the purpose of the call. SOURCE: CO:114 SOURCE: Hotel LAP: Answering the Property's Telephone. Marketing Education Resource Center,

1998. 7. A

Business letters. Business letters are the most common form of written communication used by businesses to exchange information with other organizations or with customers. Memorandums are informal letters or notes between a company's employees. They are the main form of written communication within a business. Telephone calls and meetings are not forms of written communication. SOURCE: CO:016 SOURCE: Lesikar, R.V., Pettit, J.D., Jr., & Flatley, M.E. (1999). Lesikar's basic business communication

(8th ed.) [pp. 76-77]. Boston: Irwin/McGraw-Hill. 8. D

Clarity. Communication that is expressed clearly is described as having clarity. Caution is carefully stating a point in order to avoid conflict or misunderstanding. Courtesy involves the use of tact and consideration, while consensus is group opinion. SOURCE: CO:133 SOURCE: Lesikar, R.V., Pettit, J.D., Jr., & Flatley, M.E. (1999). Lesikar's basic business communication

(8th ed.) [pp. 39-41]. Boston: Irwin/McGraw-Hill. 9. B

Physical objects that have monetary value and can satisfy wants and needs. Economic goods are useful, scarce, and transferable physical objects that satisfy economic wants. Services that are performed at no cost would be noneconomic. Activities performed by other people for money refers to economic services. Products that are distributed only in certain parts of the country would be considered regional items. SOURCE: EC:002 SOURCE: EC LAP 10—Goods and Services

10. A

Some people are unable to work. Human resources are limited for many reasons. Only some of the world's people are willing and able to work. Others are too young, too old, disabled, or not interested in working. Also, some people lack the training or skills needed to do the job, or they may not live where the jobs exist. Natural resources are limited by a country's lack of technology to tap them and by the growing population that needs them. Capital resources are limited by a company's inability to purchase equipment to produce them. SOURCE: EC:001 SOURCE: EC LAP 6—Economics

11. B

Go up. When there is more demand than there is supply, prices tend to increase in accordance with the degree of demand. As demand levels off or decreases, prices tend to drop. SOURCE: EC:005 SOURCE: EC LAP 11—Supply and Demand


12. C Test the safety of their products. Every business has the responsibility of producing and/or offering safe, quality products. If businesses fail to be sensitive to the well-being of their product users, the businesses will probably fail. Providing safe working environments and offering job training are ways businesses can be socially responsible to their employees. Contributing to community causes demonstrates social responsibility toward the community. SOURCE: EC:070 SOURCE: MB LAP 6—Business and Society

13. A

Supply and demand determine prices. Consumers indicate their demand for products by the prices they are willing to pay for those products. Property and income are not equally distributed, and poverty is a problem. There is limited government control over business. Competition, a rivalry between two or more businesses to attract scarce customer dollars, is an important economic freedom in a private enterprise system. SOURCE: EC:009 SOURCE: EC LAP 15—Private Enterprise

14. D

Profit. Profit is the monetary return or reward a business's owner or owners receive for taking the risk of investing in the business. In fact, profit is the main reason an individual would take this risk. Satisfaction, experience, and pride are other rewards the business owner may receive, but they are not monetary rewards. SOURCE: EC:010 SOURCE: EC LAP 2—Risk Rewarded

15. C

Productivity. Productivity is the amount and the value of goods and services produced (outputs) from set amounts of resources (inputs). Increasing the number of units produced from the same amount of resources will increase productivity and thus lower costs of production per unit. Improving profits, sales, or capital will not reduce costs. SOURCE: EC:013 SOURCE: EC LAP 18—Productivity

16. C

Federation. The highest level of union organization is the union federation. The goals of a union federation are similar to those of a national union in that they are concerned with helping local union members and with promoting the growth of unions in general. An open shop is a union security agreement which does not require employees to join the union or pay dues. The absorption of one company by another is a merger. A corporation is a form of business ownership. SOURCE: EC:015 SOURCE: EC LAP 5—Organized Labor

17. D

External. External causes take place outside the economic system itself. Extraneous means something unnecessary. Something which is intrinsic does not depend on external circumstances. Internal causes of business cycles, such as changes in aggregate demand, take place within an economic system. SOURCE: EC:018 SOURCE: EC LAP 9—Business Cycles

18. A

Fight or flight. The fight or flight response is the normal human reaction to feeling "under attack." The human body reacts to stress by preparing for defense or retreat. Eustress is the term for "good" stress that keeps us alert. Over-reaction and stimulus responses do not describe the physiological response to stress that results in feeling defensive. SOURCE: EI:028 SOURCE: Yamauchi, K.T. (n.d.). Stress management: Ten self-care techniques . Retrieved October 2,

2006, from http://www.reachoutmichigan.org/learn/stresmgt.html


19. C A promotion. A benefit to employees of being customer oriented is that their careers are advanced. Employees who regularly provide good customer service might receive promotions or raises. Promotions are one way for businesses to acknowledge and reward employees' customer-service skills. Honorarium is a payment given to a professional person for services for which fees are not required. A gratuity is a tip. A suspension is a temporary removal from a position or a job. SOURCE: EI:032 SOURCE: HR LAP 32—Customer-Service Mindset

20. A

Respect. Respect is showing regard for other people and their ideas. In order to have successful human relations, you must have respect for others and for yourself. It is not necessary to admire everyone or to treat them with reverence, but you should not treat anyone with indifference. SOURCE: EI:037 SOURCE: HR LAP 1—Human Relations: What, Why, How

21. B

Offering to find information for customers. Employees often need to communicate information to customers in order to provide service. On occasion, employees may not know the answer to a customer's question, but instead of saying they do not know, they should offer to find out. Obtaining information for customers is an effective way of reinforcing a service orientation through communication. Employees should help all customers rather than be selective about who they serve. Employees should never tell customers that they are misinformed. Employees should be tactful when dealing with complaints because customers are not always right. SOURCE: EI:039 SOURCE: Rokes, B. (2000). Customer service: Business 2000 (pp. 52-54). Mason, OH:

South-Western. 22. C

Slow/Methodical. Slow/Methodical customers require a lot of time to make a purchase because of shyness or difficulty in making a choice or buying decision. Disagreeable customers are unpleasant and hard to help because they are argumentative, complaining, irritable/moody, insulting, impatient, and/or have a leave-me-alone attitude. Dishonest customers intentionally attempt to avoid paying part or all of the cost of a good or service. Suspicious customers question everything and may want facts and proof before being convinced that something is true. SOURCE: EI:013 SOURCE: EI LAP 1—Making Mad Glad (Handling Difficult Customers)

23. A

Courteous and display concern. Your courteous and concerned attitude, plus the chance for the customer to express dissatisfaction, will place the customer in a good frame of mind. It is not always possible to implement customers' solutions because of the business's policies. The customer's point of view may also be unaccept able. Any adjustments allowed would depend upon the circumstances and the business's policies. SOURCE: EI:043 SOURCE: HR LAP 23—Handling Customer Complaints


24. C Accounts receivable. Accounts receivable are all monies owed to a business by its customers. A purchase made on credit is listed as a receivable because the business will not receive the money until a future date rather than when the purchase was made. If a customer buys an item on credit one day and returns it the next day, the business has not yet received payment for the purchase. Therefore, it accounts for the return by decreasing accounts receivable by the price of the item because the customer no longer owes the business that amount. Perpetual inventory is a record of inventory information continuously updated. Liabilities are the debts a business owes. Depreciation is a reduction in value of goods occurring over a period of time. SOURCE: FI:126 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (pp. 171-173). Orlando, FL: Harcourt. 25. A

Health. Many businesses offer health insurance as part of their employee benefit plan. Some businesses pay all of the premiums for their employees' coverage while others charge their employees a portion of the expense. Health insurance often is an important part of an employee's overall compensation package. Automobile, property, and liability insurance usually are the responsibility of the individual employee. SOURCE: FI:081 SOURCE: Bailey, L.J. (2003). Working: Career success for the 21st century (3rd ed.) [pp. 378-381].

Mason, OH: South-Western. 26. A

$1,533.57. Invoices list the quantity of items purchased, a description, the unit price, and the terms. To calculate the total amount due, first determine the total by multiplying the unit price by the quantity ($263.50 x 6 = $1,581.00). The terms of 3/10, n30 indicate a 3% discount if the invoice is paid within 10 days. The customer pays within five days and is entitled to the discount. To calculate the total amount due, multiply the total price by the amount of discount ($1,581 x 3% or .03 = $47.43). Subtract the discount to determine the total amount due ($1,581.00 - $47.43 = $1,533.57). SOURCE: FI:087 SOURCE: Stull, W.A. (1999). Marketing and essential math skills: Teacher's edition (pp. 71-73).

Cincinnati: South-Western Educational. 27. B

$975. Cash flow is calculated by subtracting total cash paid out from total cash receipts. Total cash paid out includes cost of goods sold and all other business expenses. Total cash receipts include cash sales, receivables, and loans. In this case, add cash sales and receivables to determine total cash receipts ($4,500 + $1,250 = $5,750), and add cost of goods sold and total expenses to determine total cash paid out ($2,100 + $2,675 = $4,775). Subtract the total cash paid out from the total cash receipts to calculate cash flow ($5,750 - $4,775 = $975). SOURCE: FI:091 SOURCE: MN LAP 60—Cash Flow

28. D

$153,800. A business's balance sheet shows the business's financial condition at a certain point in time. It includes all assets, liabilities, and the owner's equity. Total assets include such items as cash, accounts receivable, inventory, machinery and equipment, buildings, and investments. In this example, add the cash, accounts receivable, equipment, and investments to calculate total assets ($25,000 + $42,500 + $82,300 + $4,000 = $153,800). A mortgage is a liability, or debt, rather than an asset. SOURCE: FI:093 SOURCE: Longenecker, J.G., Moore, C.W., & Petty, J.W. (2003). Small business management: An

entrepreneurial emphasis (12th ed.) [pp. 294-295]. Cincinnati: Thomson/South-Western.


29. B Communicate it to all employees. To make sure their budgets are effective, businesses should communicate them to all employees. Even the best, most accurate budget is ineffective if no one sees it. Effective budgets are those that have been clearly communicated to all employees, so that each person in the company is aware of his/her effect on the company's profits. All employees should receive this information, not just top managers. Businesses usually send annual financial statements rather than budget information to their stockholders. Specific budget information usually is not posted on company bulletin boards. SOURCE: FI:106 SOURCE: FI LAP 3—Money Tracks (Nature of Budgets)

30. C

To control expenditures. A budget is an estimate of what income and expenses will be for a specific period of time. One of the main functions of an operating budget is to control expenditures so that businesses do not spend more money than they have available. Recording financial data is an accounting function. Operating budgets do not monitor accounting or regulate inflation. SOURCE: FI:098 SOURCE: Kuratko, D.F., & Hodgetts, R.M. (2001). Entrepreneurship: A contemporary approach

(5th ed.) [pp. 257-261]. Mason, OH: South-Western. 31. D

Profit-and-loss statement. A profit-and-loss statement is an income statement. It shows the business's revenue from sales, cost of goods sold, operating expenses, and both gross and net profit. A balance sheet is a financial statement that captures the financial condition of the business at that particular moment. Accounts receivable are monies owed to a business by its customers. Cash flow is the movement of funds into and out of a business. SOURCE: FI:102 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[pp. 413-415]. Cincinnati: South-Western. 32. D

Assets = Liabilities + Capital. The basic accounting equation is expressed as Assets = Liabilities + Capital. The liabilities of a business are the monies it owes to others. The capital is the owner's equity in the business. Assets are anything of value that a business offers for sale. By combining the liabilities and the capital, a business calculates its assets. The alternatives are not the basic accounting equations. However, profit is determined by subtracting expenses from revenues. SOURCE: FI:108 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[pp. 410-411]. Cincinnati: South-Western. 33. A

Making a business seem more liquid than it is. Businesses have an obligation to be ethical in their accounting procedures. However, some financial data are projections, or estimates, of future earnings and expenses. Expenses are a type of liability, or debts, that businesses owe. If a business values a liability at less than its actual amount, the business may seem to be more liquid than it is. Liquidity is the ability to convert assets to cash. If a business has few liabilities, it has more ability to liquidate assets to generate cash. However, it is unethical to understate liabilities simply to make a business seem more liquid than it is. It may even be illegal if the business does this deliberately to obtain loans or attract investors. Reporting the current rate of depreciation, attempting to collect accounts receivable, and preparing a credit memorandum for a customer are not examples of an unethical situation in accounting. SOURCE: FI:109 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (p. 485). Orlando, FL: Harcourt.


34. B Making errors in recording financial data. A chart of accounts is a numbering system that helps businesses to organize their accounts. Each type of account is assigned a specific number. This system helps to reduce the possibility of making errors in recording financial data because the number must correspond to the account. For example, if the accounts payable account has a corresponding number of 405, then both the name and number will appear on financial records. As a result, it is more difficult to make recording errors. A chart of accounts lists the business's accounts rather than the accounts of each customer. Customer accounts are listed under the category of accounts receivable, which has an assigned number. Businesses do not develop a chart of accounts to reduce the possibility of overpaying the utility expense or depreciating new equipment. SOURCE: FI:110 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (pp. 942-943). Orlando, FL: Harcourt. 35. C

Financial transactions. A transaction is a business activity such as a sale, a purchase, or a return. Businesses keep a variety of source documents to use as evidence of financial transactions. For example, a sales receipt is a source document that proves that a sales transaction occurred. A bill from a supplier is a source document that serves as evidence that a business purchased an item from a supplier. Source documents are a type of business record. Businesses keep a variety of source documents to use as evidence of credit agreements, sales procedures, and operating activities. SOURCE: FI:111 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (p. 121). Orlando, FL: Harcourt. 36. A

Give receipts to all customers. Most businesses use a variety of procedures to control cash. One of these is to train employees how to use the cash register and require that they ring up each sale on the register and give receipts to all customers. When an employee rings up a sale, the register automatically records the sale and prints a customer receipt. This procedure helps to control cash because it reduces the possibility of employees accepting payment from customers without recording the sale and issuing a receipt. Monitoring intangible assets, tracking dividends paid to owners, and evaluating projected budgets are not internal procedures that many businesses use to control cash. SOURCE: FI:113 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (pp. 270-271). Orlando, FL: Harcourt. 37. D

Petty cash fund. Many businesses maintain a petty cash fund to cover small, unexpected expenses such as buying replacement supplies in an emergency situation. Businesses often evaluate the use of a petty cash fund to determine if it is effective, or if cash is not being accounted for when it is spent. A business might decide to revise the use of a petty cash fund if it finds that money is flowing out of the business, but there are no records verifying the payments. A line of credit is a type of loan. Accounts receivable are all the monies owed to a business by its customers. Invoice preparation involves preparing the document to send to customers to obtain payment for a sale. SOURCE: FI:114 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[pp. 387-388]. Cincinnati: South-Western.


38. C $15.75. A credit memorandum is a source document that tracks transactions such as a sales allowance. In this situation, a customer purchases a $70 product with a 10% discount, so pays $63 for the product ($70 x 10% or .10 = $7; $70 - $7 = $63). The customer returns the product because it is slightly damaged and is offered an additional 25% allowance to keep the product. The allowance will be 25% of the $63 purchase price ($63 x 25% or .25 = $15.75). The credit memorandum indicates that $15.75 will be deducted from sales revenue because the sale price was reduced, and that amount was returned to the customer. SOURCE: FI:115 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Amount to pay. Accounts payable checks are checks that businesses process to pay creditors. In many situations, the creditors are vendors or suppliers that offer the business terms to encourage prompt payment. Businesses factor in these terms in order to calculate the amount to pay when processing accounts payable checks. For example, if a business is paying an invoice that lists terms of 2/10, n/30, the business knows that it can take a 2% discount if it pays within 10 days. Before processing the check, the business first calculates the discount and subtracts it from the original invoice amount to determine the actual amount to pay. Businesses do not factor in the invoice terms in order to calculate the rate of interest, sales tax, or gross profit. SOURCE: FI:117 SOURCE: Pinson, L., & Jinnett, J. (1998). Keeping the books: Basic recordkeeping and accounting for

the small business (4th ed.) [pp. 42-43]. Chicago: Upstart. 40. A

To compare with bank statements. Businesses usually pay expenses with checks and keep track of each check by listing it in the check register. This enables a business to keep a running count of the amount of money available in a checking account. Businesses also list deposits in the check register. Then, businesses compare the information in the check register with the bank statement. The information should agree. However, if there is a difference, the business must identify and correct the error so the check register is reconciled with the bank statement. Businesses do not maintain check registers to verify endorsements, fill out deposit slips, or count the number of checks. SOURCE: FI:118 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[p. 458]. Cincinnati: South-Western. 41. A

Discount terms. Accounts payable are debts or liabilities. In many cases, accounts payable include money owed to suppliers for purchases made on credit. Businesses often prepare an accounts payable schedule based on available discount terms that have been offered by suppliers. For example, a supplier might offer terms of 3/15, n/30 which means that the business can take a 3% discount if it pays within 15 days. To take advantage of the discount, a business might schedule to pay that account prior to the 15-day deadline. Businesses do not prepare accounts payable schedules based on available interest rates, tax deductions, or credit balances. Accounts payable are credit balances that a business owes. SOURCE: FI:119 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (pp. 462-464). Orlando, FL: Harcourt.


42. D Costing procedures. Businesses use some type of costing procedures to track and calculate the expense involved in producing products. Costing procedures take into consideration the various costs involved, such as raw materials and labor, as well as the process used to produce products. Then, businesses assign costs to the various production activities, and track those costs to calculate the total costs involved in producing products. Purchasing policies are the rules businesses follow when purchasing materials and supplies. Ordering techniques are the methods used to place orders. Selling methods are the techniques used to sell products. SOURCE: FI:121 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (pp. 538-539). Orlando, FL: Harcourt. 43. B

Direct and indirect labor. There are three main categories of costs associated with implementing costing procedures: raw materials, labor, and overhead. Labor costs include both direct and indirect labor. Direct labor costs are those costs incurred by the employees who actually produce the product. Indirect labor costs are those costs associated with fringe benefits for employees and for employees performing tasks not directly related to producing products. Indirect labor costs are included in the overhead category rather than in the labor category. Net profit and loss, dividends, and sales returns and allowances are not expenses that a business considers when implementing costing procedures. Businesses might consider interest rates if there are loans associated with purchasing raw materials. SOURCE: FI:122 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Interest. Some businesses issue bonds as a way of borrowing money. When the bonds mature after the designated period of time, the businesses repay the borrowers. Businesses also pay interest on the amount borrowed to encourage people to buy bonds. The advantage to the business is that it obtains needed funds. The advantage to those who purchase bonds is that they earn interest on their money. Stockholders receive dividends. The business earns a profit. Revenue is income. SOURCE: FI:124 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[p. 440]. Cincinnati: South-Western. 45. D

Owns 20% to 50% of common stock. Businesses account for investments in other companies according to the level of ownership, also known as the amount of influence. If a business owns 20% to 50% of another company's common stock, it has a significant influence on that company. This type of investment is considered a long-term investment which means that the business has equity in the other company. The business accounts for the investment by listing the value of its percentage of ownership as well as the amount of any dividends received. The market value method is used if a business owns less than 20% of another company's common stock such as between 10% and 15%. The consolidation method is used if a business owns more than 50% of another company's common stock. SOURCE: FI:125 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Fair Credit Billing Act. This legislation requires businesses to respond within 30 days to any customer complaint or inquiry concerning a credit billing error. The business must correct the error or misunderstanding within 90 days. The Fair Credit Reporting Act gives consumers the right to inspect, correct, and update their credit files. The Truth-in-Lending Act requires that businesses give customers specific credit information. The Equal Credit Opportunity Act prohibits the denial of credit based on the applicant's gender, race, age, marital status, or national origin. SOURCE: FI:002 SOURCE: FI LAP 2—Credit and Its Importance


47. C Check amount. When processing customer payments, it is important to compare the payment notice with the check amount to make sure the customer has paid the correct amount. The payment notice indicates the amount that the customer is required to pay. By comparing this amount with the check amount, a business can give a customer credit for paying the correct amount. If there is a discrepancy, the business can contact the customer to determine the cause. In some cases, customers miscalculate sales discounts and accidentally pay the wrong amount. The discount terms, account number, and possibly the interest rate appear on the payment notice. SOURCE: FI:127 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Payment notice. Businesses routinely prepare billing statements for customers to pay credit accounts. When preparing these statements, businesses usually include a payment notice, which is the part of the statement that the customer mails back with a check. The payment notice contains the information a business needs to process the payment such as the account number and balance due. Sales allowances involve giving customers additional discounts or refunds of part of the original purchase price. A balance sheet is a financial statement that captures the financial condition of the business at that particular moment. An audit report is not included with a customer's billing statement. SOURCE: FI:128 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (p. 442). Orlando, FL: Harcourt. 49. A

Charging interest on unpaid balances. Businesses attempt to control accounts receivable to make sure customers pay on time. If customers fall behind on their payments, the business may lose money or have difficulty paying its own bills. One way to control accounts receivable is to charge interest on balances that have been due for more than a certain period of time such as 30 or 60 days. If customers know they will be charged interest, they are more likely to pay their accounts when they are due. Businesses routinely send statements once a month, and require a credit application. However, these are not ways of controlling accounts receivable. Purchasing insurance policies will not control accounts receivable. SOURCE: FI:130 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[pp. 490-492]. Cincinnati: South-Western. 50. C

Aging. Businesses realize that it may not be possible to collect all accounts receivable. Therefore, they need to use a method to estimate the expense associated with uncollectible accounts. One effective method is the aging method which is based on how long the amounts have been owed to the business. According to this method, the older the unpaid account, the less likely that it will be paid. For example, a business using the aging method to estimate uncollectible accounts expense may calculate that 10% of receivables that are 60 to 90 days past due will not be collected. This percentage may increase as the receivables age. Historical, budgeting, and maturity are not methods to use to estimate uncollectible accounts expense. SOURCE: FI:131 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business



51. B Account receivable. When a business writes off a bad debt as uncollectible, it eliminates the customer's account receivable. At this point, the business has decided that it will be impossible to collect the debt, and deducts the amount of the debt from the allowanc e for bad debts category and from the customer's account receivable. The customer's account now has a balance of zero (0). Sales allowances involve giving customers additional discounts or refunds of part of the original purchase price. Operating capital is the monies used by a business to pay the costs of running the business. Accrued revenue is income earned but not collected or recorded. SOURCE: FI:133 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Employee earnings. Businesses maintain payroll records for each employee that contain information about hours worked, wages, payroll date, type and amount of deductions, etc. Businesses maintain employee earnings records to be able to accurately compensate employees for their time and effort. Businesses also use this information to monitor the amount of money they pay employees because employee compensation is a major business expense. Accounts payable are the monies owed by the business to others. However, this does not include employees. Liabilities are debts the business owes. Cash disbursement records contain information about cash payments. Employees usually are not paid in cash. SOURCE: FI:134 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[p. 391]. Cincinnati: South-Western. 53. D

To track employees' hours. Most businesses use some type of system to track employees' hours in order to determine the time worked and prepare the payroll. Using payroll time cards is often an effective way for employees to record their time. The time cards may be simple sign-in sheets that employees complete when they arrive for work, leave for lunch, return from lunch, and leave for the day. Some businesses use a time clock that records the times for each employee. At the end of a pay period, businesses process the time cards to track employees' hours and pay them for the time worked. Businesses establish benefits before hiring employees. Businesses process time cards to prepare the payroll rather than to monitor work shifts. Wage laws do not require businesses to use time cards. SOURCE: FI:135 SOURCE: CCH Inc. (n.d.). Keeping track of an employee's hours. Business owner's toolkit. Retrieved

October 2, 2006, from http://www.toolkit.cch.com/text/P05_4121.asp 54. A

Gross wage. The first step in preparing an employee's payroll check usually involves calculating gross wage which is the amount of pay before deductions. For example, an employee is paid $9 an hour and works a 40-hour week. The gross wage is $360 ($9 x 40 = $360). After calculating gross wage, a business makes the appropriate deductions for authorized withholdings such as income tax and insurance. Then, the business prepares a payroll check for the remaining amount. Businesses usually pay employees for mileage expense in an expense check rather than as part of payroll. The business accumulates a tax liability because it withholds tax from employees' wages and must pay the withheld tax to the government. An employee determines his/her withholding status based on the number of dependents. SOURCE: FI:137 SOURCE: Pinson, L., & Jinnett, J. (1998). Keeping the books: Basic recordkeeping and accounting for

the small business (4th ed.) [pp. 44-45]. Chicago: Upstart.


55. A Working at home. Some businesses allow employees to do some of their work at home. If the business has this policy and knows that an employee is working at home, the business is obligated to pay the employee for that time. Employees who work at home usually complete some type of time sheet to indicate their hours. Then, businesses verify the payroll data and compensate employees for that time. However, if a business does not have a policy that allows employees to work at home, or does not authorize employees to work at home, the business is not required to pay them for that time. Businesses usually do not compensate employees for being on call because they are at home and free to do whatever they want. Businesses are not required to compensate employees for driving to work or for going to voluntary training. SOURCE: FI:138 SOURCE: CCH Inc. (n.d.). What counts as compensable work? Business owner's toolkit. Retrieved

October 2, 2006, from http://www.toolkit.cch.com/text/P05_4115.asp 56. C

Cash assets. Businesses need to have cash to cover payroll costs. When businesses pay employees, they deduct the amount of the payroll from cash assets. By doing this, businesses are able to keep track of the amount of cash they have on hand to pay expenses. Payroll is an example of an operating expense. Net income is the money remaining after operating expenses are subtracted from gross profit. Accounts receivable are all monies owed to a business by its customers. Accounts receivable are assets that impact the amount of cash that businesses have available to cover payroll costs. SOURCE: FI:139 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Quarterly. Businesses are required to generate payroll tax reports on a quarterly basis, and send the reports and the tax payments to the government. The year is divided into four quarters ending in March, June, September, and December. At the end of each quarter, businesses report payroll tax to the government. At the end of the year, businesses compile year-end reports that summarize the information that was submitted quarterly. This information must agree with the quarterly information. Businesses do not generate payroll tax reports and send tax payments to the government on a monthly or semi-annual basis. SOURCE: FI:140 SOURCE: Pinson, L., & Jinnett, J. (1998). Keeping the books: Basic recordkeeping and accounting for

the small business (4th ed.) [pp. 46-47]. Chicago: Upstart. 58. D

$6,762. Cost of goods sold is the amount of money a business pays for the products it sells or for the raw materials from which it produces goods to sell. If a business receives a discount from vendors, the cost of goods sold is reduced. Many businesses track the cost of goods sold on a monthly basis. To calculate the cost of goods sold in this example, first add the cost of the goods purchased from the three vendors ($3,500 + $1,750 + $2,100 = $7,350). The business received an 8% discount from each vendor, therefore, calculate the discount ($7,350 x 8% or .08 = $588). Subtract the discount from the original price to determine cost of goods sold ($7,350 - $588 = $6,762). SOURCE: FI:141 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business



59. C $6,000. Depreciation is the loss of value of a business's assets over a period of time. Businesses usually depreciate equipment over a period of time so at the end of that time, the equipment has no value. In this example, calculate yearly depreciation by multiplying the value of the equipment by the depreciation rate ($30,000 x 20% or .20 = $6,000). Each year the business will deduct $6,000 from the value so that at the end of the five years, the equipment will have no value ($30,000 - $6,000 = $24,000 - $6,000 = $18,000 - $6,000 = $12,000 - $6,000 = $6,000 - $6,000 = $0). SOURCE: FI:143 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[pp. 389-391]. Cincinnati: South-Western. 60. C

Straight-line. The straight-line depreciation method is a simple and commonly used technique. It involves depreciating an asset by the same amount each year for the life of an asset. For example, assume that a business buys a $20,000 piece of equipment and plans to depreciate it over a five-year period. Using the straight-line method, a business would depreciate the equipment by $4,000 each year for five years, and list $4,000 as depreciation expense on financial statements. Under the accelerated method, a business depreciates assets higher the first year and less in subsequent years. Book value is the value of an asset after depreciation. At the end of the first year using straight-line depreciation, a $20,000 piece of equipment has a book value of $16,000. Estimated is not a depreciation method. SOURCE: FI:144 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Future availability of funds. Capital expenditures involve spending money to buy or replace a business's fixed assets such as equipment or facilities. Businesses need to plan for capital expenditures because these assets wear out over time, or the business expands and needs additional equipment or facilities. However, before deciding to replace assets or buy new assets, a business must consider the future availability of funds. If a business plans to buy new equipment next month, it needs to know that it will be able to pay for the equipment. This decision is often based on sales estimates. Businesses do not consider the current level of inventory, the value of existing assets, or the possible date of delivery before making capital expenditure decisions. SOURCE: FI:145 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[pp. 396-398]. Cincinnati: South-Western. 62. D

$727.50. Offering cash discount terms is a sales policy that affects income statement reporting because it decreases sales revenue by the amount of the discount. Businesses include on the income statement only the amounts that customers actually pay for products rather than the original price. In this example, the business is offering cash discount terms of 3/15, n/30 on a product priced at $750. If the customer pays within 15 days, the customer is entitled to a 3% discount. Calculate the amount the business will report on its income statement by determining the amount of discount ($750 x 3% or .03 = $22.50). Then, subtract the discount from the original price ($750.00 - $22.50 = $727.50). SOURCE: FI:147 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business



63. B FIFO. The value of cost of goods sold is affected by a business's inventory system. If a business uses the FIFO system (first-in first-out), the value is usually lower because the goods are valued based on the price paid when they were purchased. As a business replaces the goods, the price often increases so the goods purchased last cost more than the goods purchased first. The LIFO system (last-in first-out) values inventory according to the cost of the goods purchased last. As a result, the cost of goods sold is higher on financial statements. FILO and LOFI are not inventory systems. SOURCE: FI:148 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Net sales revenues. When preparing a profit-and-loss statement, a business begins with net sales revenues and subtracts cost of goods sold to determine gross profit. Once the business determines gross profit, it subtracts operating expenses to determine operating income. From that figure, it subtracts any other expenses to determine net income (profit) or net loss. Although cost of goods sold and operating expenses are factors involved in preparing a profit-and-loss statement, a business does not begin with them. Returns and allowances are expenses. SOURCE: FI:149 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Bank reconciliation. Businesses usually pay expenses with checks, but the funds to cover the checks are in the form of cash, usually in a business's checking account. Businesses maintain records of cash balances, which are the funds available, and the bank also maintains a record. A procedure a business follows to manage its cash balance involves reconciling its records with the bank records. This procedure helps to prevent errors because both sets of records should agree. By reconciling the records each month, a business can verify that all deposits were made, all checks were paid out correctly, and that the cash balance is accurate. Income budgeting, asset verification, and payroll monitoring are not procedures a business follows to manage its cash balance. SOURCE: FI:150 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Taxes. All businesses pay taxes. Therefore, taxes are a cost of doing business that impact company expenses because businesses must pay the taxes. These might be income tax, sales tax, payroll tax, property tax, etc. Depending on the business, taxes may be significant. Businesses estimate the amount of taxes they will owe to make sure they generate sufficient income to pay the expense. Interest is money payments for the use of borrowed money. Interest is an expense if the business borrows money. However, interest is income if the business loans money and collects interest, such as a savings account earning interest. Sales generate revenue and are usually the main source of income for a business. However, there are expenses involved in selling. Margins are not a cost of doing business that impact company expenses. SOURCE: FI:152 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business



67. A Savings accounts. Liquidity refers to a business's ability to turn investments in to cash. To increase their liquidity, businesses often keep emergency cash in savings accounts because it is fairly easy to remove cash from those accounts. If the business has unexpected expenses, it can transfer funds from a savings account to a checking account to pay bills. It is not as easy to obtain cash from certificates of deposit, mutual funds, and government bonds because these investments usually are for an established period of time and have penalties attached for early withdrawal. SOURCE: FI:153 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[p. 465]. Cincinnati: South-Western. 68. B

Numbers. A budget is an estimate of what income and expenses will be for a specific time period. The process of budgeting involves translating the business's activities and goals into monetary numbers. For example, a business might plan to earn $50,000 profit next year. However, the business also must plan the amount to spend to achieve that goal and the amount of sales that must occur. A business might plan to spend $500 a month on advertising to generate monthly sales of $10,000. Then, the business also assigns a dollar value to other operating activities. The end result should be a budget that expresses in numbers the revenues and expenses that will lead to the desired amount of profit. The budgeting process does not involve stating information in outlines, percentages, or charts. SOURCE: FI:155 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Master budget. The master budget is the overall financial plan for a business over a period of time, usually one year. Businesses develop a master budget to explain the relationships between the business's goals, resources, and expected financial results. The intent is to organize the business's finances to obtain the necessary resources to achieve the objectives of the business, which usually is to earn an acceptable profit. A master budget is based on individual budgets, such as sales and cash budgets, and includes projected balance sheets and profit statements. A liability report does not explain the relationships between the business's goals, resources, and expected financial results. SOURCE: FI:156 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Other budgets. Businesses prepare the sales budget in order to estimate sales revenue for a period of time. Developing the sales budget is important because it usually is the basis of other budgets such as the merchandising budget and the cash budget. Businesses need an estimate of revenue from sales before they can allocate money to buy merchandise or pay expenses. The sales budget is not the basis of the balance sheet, the income statement, or the business's net worth. SOURCE: FI:157 SOURCE: Everard, K.E., & Burrow, J.L. (2001). Business principles and management (11th ed.)

[pp. 393-395]. Cincinnati: South-Western. 71. A

Buying goods for resale. Businesses prepare purchases budgets to have the right amount of goods in stock when needed by customers. One aspect of preparing the purchases budget is estimating the amount of money to spend on buying goods for resale. Once businesses determine the quantity of goods they need, they can assign a dollar amount and prepare a budget to make the purchases. A selling expenses budget might include the amount to spend on entertaining suppliers and compensating sales employees. Replacing warehouse equipment is included in the capital budget. SOURCE: FI:158 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business



72. D Revise operating plans. A projected income statement lists a business's expected expenses and revenues for a certain period. It is actually the plan the business hopes to follow to earn the desired level of profit. As a result of evaluating projected income statements, businesses might find that they are not earning sufficient profit and need to change the way they are operating. The evaluation might indicate that expenses are higher than projected while sales are lower. If this occurs, a business must revise its operating plan to cut expenses and find a way to increase sales. One revision might involve trying to decrease the amount of credit sales and increase the amount of cash sales to improve cash flow. As a result of evaluating projected income statements, businesses do not purchase additional assets. Fixed costs are those expenses that are not affected by changes in sales volume. SOURCE: FI:160 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business

decisions (p. 102). Orlando, FL: Harcourt. 73. C

Amounts it will owe to others. Projected balance statements are estimates of planned available resources and expenses over a certain period of time. After preparing projected balance statements, businesses evaluate them to determine if they will earn sufficient income to pay the amounts owed to others such as creditors and employees. If businesses determine that expenses will be more than available resources, they can make adjustments. For example, a projected balance statement included salaries for new employees that the business planned to hire. However, the projected balance statement indicated that there would not be sufficient resources available to cover the new expenses. Businesses do not evaluate projected balance statements to estimate stock dividends to pay, uncollectible accounts expense, or capital expenditures. SOURCE: FI:161 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Master budget. The master budget is the overall financial plan for a business over a period of time, usually one year. It indicates all estimated revenues and expenses. By comparing the master budget to the business's actual performance, the business can determine if it is operating as planned and achieving the desired level of profit. For example, if the master budget projected revenues of $500,000 for the first six months and actual revenues were $550,000 for that time, the business finds that it is exceeding its goal. Businesses do not use accounting systems, industry standards, or operating methods to evaluate projected performance with actual performance. SOURCE: FI:162 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


To reimburse employees. Most businesses reimburse employees for out-of-pocket expenses such as travel and entertainment. To obtain reimbursement, employees complete a voucher explaining the expenses and usually include receipts. Once the business receives the voucher, the accounting department processes the voucher and authorizes payment to the employee. Businesses do not process voucher forms to pay purchase orders, make requests of vendors, or control operating costs. SOURCE: FI:164 SOURCE: University of Illinois. (2002, October). Business and financial policies and procedures .

Retrieved October 2, 2006, from http://www.obfs.uillinois.edu/manual/central_p/sec8-2.html 76. B

$227,500. Corporations pay cash dividends to investors who own shares of stock in the company. Dividends are based on a company's earnings and are a share of profits paid to stockholders. To calculate the cash dividends a business owes, multiply the per-share dividend by the number of common shares ($650,000 x $ .35 = $227,500). SOURCE: FI:165 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business



77. B Working capital. Businesses that sell stock usually pay cash dividends to investors. However, before paying dividends, businesses usually analyze the effect that it will have on the financial condition of the business. A business must have sufficient cash on hand to pay dividends. Also, a business needs to make sure that paying dividends will not have a negative effect on the amount of working capital, which is current assets minus current liabilities. If working capital is reduced too much, the business might not be able to generate cash in the event of an emergency. Therefore, businesses declare a per-share dividend that will be fair to investors, but will not significantly reduce the amount of working capital. SOURCE: FI:166 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


To have sufficient cash to pay debts. Liabilities are debts a business owes to others. Businesses continually evaluate liabilities to make sure they have sufficient cash to pay those debts. If a business discovers that the amount of liabilities exceeds the amount of available cash, it must find a way to obtain additional cash or find a way to reduce liabilities. Businesses do not evaluate liabilities to calculate gross profit before taxes, track the value of receivables, or determine the level of projected sales. SOURCE: FI:167 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


Variances. The differences between actual and estimated expenses are variances. Established businesses usually are able to estimate expenses fairly accurately based on information from previous years. However, if differences occur, they may be an indication of a pattern that the business should consider. For example, if the variance between estimated and actual expenses is significant, the business may need to budget additional funds in the future. By tracking the variance, a business will be able to more accurately estimate expenses. Some businesses base estimates of expenses on certain standards. A business does not account for differences between actual and estimated expenses in order to calculate conversions or exchanges. SOURCE: FI:168 SOURCE: Cunningham, B.M., Nikolai, L.A., & Bazley, J.D. (2000). Accounting: Information for business


187. The estimated yearly turnover rate is an important factor that businesses consider when determining future hiring needs. Businesses usually monitor possible turnover in order to be prepared to hire replacements. As a rule, businesses know in advance the number of employees who will probably retire each year. They also factor in the number who will leave for other reasons based on the turnover rate for previous years. In this example, 82 employees will be eligible to retire. Also, 7% are expected to leave for other reasons (1,500 x 7% or .07 = 105). Add the two figures to determine the number of new employees that the business may need to hire during the year (105 + 82 = 187). SOURCE: HR:353 SOURCE: Dessler, G. (2000). Human resource management (8th ed.) [pp. 124-125]. Upper Saddle

River, NJ: Prentice Hall. 81. B

Conduct a job analysis. A job analysis is an outline of general job requirements that is needed in order to define the skills necessary to perform a specific job. After completing the job analysis, a business would be ready to write a job description, seek applicants, review their background and work history contained in their resumes, and conduct job interviews with individuals who seem to be the best qualified for the job. SOURCE: HR:356 SOURCE: Gatewood, R., & Field, H.S. (2001). Human resource selection (5th ed.) [pp. 269-270].

Orlando, FL: Harcourt.


82. B Employee handbook. An employee handbook provides new employees with printed information about the business that the employee can read and refer to when s/he has questions about the business. Employee handbooks usually include basic information such as company history, hours of operation, benefits, and company policies. Providing employees with handbooks reduces the amount of time that must be spent in orientation sessions. An exit interview is a discussion with an employee who is leaving the company. A performance appraisal is an evaluation of the employee's job performance. A job applicant provides a prospective employer with a copy of his/her resume, which outlines his/her work experience and educational background. SOURCE: HR:360 SOURCE: Dessler, G. (2000). Human resource management (8th ed.) [p. 249]. Upper Saddle River,

NJ: Prentice Hall. 83. A

Modern technology. A company's training and development program is influenced by both internal and external factors. External factors include changes in technology, the economy, and the competition. Internal factors include changes in the company's needs; employees' skills; and the education, experience, and work values of employees. SOURCE: HR:362 SOURCE: MN LAP 42—Training/Human Resource Development

84. B

Spread to other employees. When managers fail to take action in resolving employee complaints, employees express their dissatisfaction to other employees and to customers. What was initially a minor problem can become a major controversy. Unresolved complaints can cost a company money, lower employee morale, and damage the company's image. SOURCE: HR:366 SOURCE: MN LAP 45—Handling Employee Complaints

85. A

Marketing concept. The marketing concept is based on satisfying the needs and wants of customers. The production process is the activity of producing goods and services. The promotional mix is the combination of communication channels a business uses. The promotional-mix concept does not result from providing previously discontinued products. Distribution involves moving, storing, locating, and/or transferring ownership of goods and services. SOURCE: MK:001 SOURCE: BA LAP 11—Have It Your Way! (Marketing)

86. C

Business. The primary function of record keeping is to provide information that indicates the status of the business. In other words, record keeping provides information about what is happening with the business, such as whether it is making a profit or it is spending too much on expenses. The records that a business keeps are not designed to provide information about what is happening with the economy, the country, or the industry. However, the business's records might reflect current economic or industry trends. SOURCE: NF:001 SOURCE: NF LAP 1—Record It (Business Records)

87. A

Report it to a supervisor. Any situation that is unsafe should be immediately reported to a supervisor. Correcting hazards is part of supervisory responsibilities. Employees should not try to fix most problems. Ignoring possible dangers is unsafe and could harm others. Calling an electrician is a management responsibility. SOURCE: OP:007 SOURCE: RM LAP 2—Following Safety Precautions


88. B Yes, the government requires businesses to record accidents. Businesses are required to keep a running log, or record, of work-related accidents. This information is compiled by the government into reports that identify workplace areas or industries in which better accident prevention is needed. Government does not investigate all accidents. The Good Samaritan Law is a state law that protects individuals from liability if they administer accepted first-aid techniques to injured persons. It is not in effect in all states. SOURCE: OP:009 SOURCE: RM LAP 3—Handling Accidents

89. D

Buying. The buying process is a series of sequential steps taken by industrial or retail buying personnel to purchase goods and services. Identifying an organizational need, such as what types of goods and services employees need to perform their jobs, is often the first step in the buying process. Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. The receiving process is all of the activities involved in accepting delivery of goods and preparing them for sale to customers. The selling process is a systematic approach to selling that consists of a sequence of selling phases intended to assist salespeople in achieving their goal of making a sale. SOURCE: OP:015 SOURCE: PU LAP 1—Purchasing

90. C

Necessary steps. There are several elements involved in developing a project plan. One element is to determine the goals, or objectives, of the plan. Once the objectives have been established, businesses need to identify the specific steps that will be necessary to achieve those objectives. For example, if an objective is to open a new location, a business will need to research the market in that area, gather information about existing space or building regulations, and analyze the availability of workers. A business will not be able to achieve the objectives of a project plan if it fails to identify the necessary steps. The goals are the objectives of the plan. Businesses do not need to identify simple rules or formal systems in order to achieve the objectives of a project plan. SOURCE: OP:001 SOURCE: DuBrin, A.J. (2003). Essentials of management (6th ed.) [pp. 112-115]. Mason, OH:

South-Western. 91. D

Meeting project deadlines. Employees need to accomplish as much as possible while they are on the job rather than just put in their hours. One way they can manage their work in order to control expenses is to meet deadlines so they don't hold up coworkers' projects or disappoint customers. Holding up co-workers might cost the company additional money for wages and time involved, while disappointing customers might result in lost sales. Arriving on time, following leave procedures, and staying until closing are ways that employees can help to control expenses by managing their time. SOURCE: OP:025 SOURCE: MN LAP 56—Employee Role in Expense Control

92. A

Straightening up personal workstation. A routine housekeeping activity that employees should perform on a regular basis is straightening up of his/her personal workstation. If an employee's workstation and floor are cluttered with books, papers, and other supplies, the area around the employee's workstation can create a hazard for other employees because they might trip over the items and injure themselves. A business's maintenance staff is responsible for washing windows, vacuuming carpets, and cleaning the receiving area. SOURCE: OP:032 SOURCE: Educational Institute of the American Hotel & Motel Association. (1999). Lodging

management program: Year one (pp. 320-321). Lansing, MI: Author.


93. D Realistic. One of the characteristics of a good goal is that it should be realistic and attainable. Your goals must be appropriate to you and your abilities. You must set goals that you are capable of reaching. These goals do not necessarily have to be conservative, convenient, or safe. SOURCE: PD:018 SOURCE: HR LAP 6—Goal Setting

94. D

Reach a compromise. Employees who have different opinions often negotiate with each other in order to reach a compromise and solve the problem. Compromising involves each employee conceding a few issues in order to reach a mutual agreement. Compromise is often the result of successful negotiations because each employee obtains something and both sides meet part way. Employees do not negotiate in order to avoid rejection or to make a statement. Negotiating often results in cooperation rather than creating opposition. SOURCE: PD:078 SOURCE: Daggett, W.R., & Miles, J.E. (1998). The dynamics of work: Introduction to occupations

(2nd ed.) [p. 249]. Cincinnati: South-Western Educational. 95. B

Recognition. Praise and recognition are primary motivators for creative people. They do not exhibit a marked desire for conflict. While money and promotion may be important, they are usually secondary motives to highly creative types. SOURCE: PD:012 SOURCE: PD LAP 2—Creativity

96. C

To thank the interviewer. The main reason for writing a follow-up letter is to thank the interviewer for his/her time. It also gives applicants the opportunity to keep their names in the interviewer's mind and to reinforce their interest in the job. Applicants provide copies of their resumes before the interview. The resume or job application should contain the names of references. The follow-up letter should reinforce an applicant's interest in the job without actually asking for it. SOURCE: PD:029 SOURCE: Daggett, W.R., & Miles, J.E. (1998). The dynamics of work: Introduction to occupations

(2nd ed.) [p. 72]. Cincinnati: South-Western Educational. 97. D

By requiring members to adhere to codes of ethics. Professional associations encourage their members to maintain high professional standards by sometimes requiring members to adhere to codes of ethics that establish standards of behavior in their professional dealings. Workshops and seminars help to expand the knowledge of the members; they do not require members to adhere to the code of ethics. Funding research projects does not involve requiring members to adhere to the code of ethics. Professional libraries maintained by the association provide a source of materials but do not require members to adhere to a code of ethics. SOURCE: PD:036 SOURCE: CD LAP 1—Trade Associations/Professional Organizations

98. C

The break -even point. The break-even point is reached when revenue, or income, from sales is equal to the expense involved in making those sales. Economies of large-scale production pertains to a decrease in unit cost due to an increase in production quantity. Overhead is a form of operating expenses. SOURCE: PI:006 SOURCE: Farese, L.S., Kimbrell, G., & Woloszyk, C.A. (2006). Marketing essentials (p. 533). New

York: Glencoe/McGraw-Hill.


99. C Communicate clearly. Managers must be able to clearly communicate their ideas and what they expect if they want employees to be productive. Managers cannot expect workers to accomplish the business's goals if employees don't know what the goals are or the procedures they should follow to achieve the goals. Managers ask questions, listen, and obtain feedback to determine if they are communicating effectively and if employees understand. SOURCE: SM:001 SOURCE: BA LAP 6—Manage This!

100. A

Economic trends affect consumer spending. Studying economic trends helps business planners predict how willing consumers will be to spend their money. For example, consumers tend to delay the purchase of luxury or large-ticket items during bad economic conditions. Upturns in the economy cannot always be predicted. A slow economy reduces investor confidence. The fact that some businesses must meet licensing requirements is not related to economic trends. SOURCE: SM:011 SOURCE: MN LAP 43—External Planning Considerations

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